It isn’t uncommon for holiday home owners to turn to letting their property during the months they’re at home as a way of getting the most from their investment. So what do you need to do to make sure you don’t offend the taxman?
Firstly you will need to register the Spanish Villa for tax purposes in the UK. This is because you are earning money as a resident in the UK, so you will need to declare all of your rental income to HMRC each tax year.
You will be taxed in the same way those who own property in the UK are taxed. You will need to work out the profits for all your foreign properties as a whole by declaring your income, minus any expenses.
Expenses are only allowable if they occurred whilst running your property. For example, letting agent’s fees, legal fees, accountant’s fees, buildings and contents insurance, maintenance and repairs, utility bills, ground rents and service charges, cleaning, gardening and advertising costs in letting the property.
You pay income tax on any profits at your normal rate. When you work out the amount you owe, you should use the exchange rate for when the rent was due.
Normally, the foreign tax authorities will also charge tax on your letting profits. But you won't pay twice – the overseas tax paid is usually deducted from the UK tax that is due. You declare income from foreign properties on the foreign property pages of the self-assessment form.
Before you consider letting a holiday home you should consult with an accountant or tax advisor, both in Spain and the UK, for a more in-depth idea of what you will owe in taxes.
